From Far East Capital newsletter (bolding mine). Picked up a few yesterday on the basis of this (and that it rhymes with my PCL holding)
One indictor that a company’s share price is approaching its nadir is when it starts to approach its cash backing. Now that is not a guarantee that you will make money as an investor, as that company’s funds may already be committed, but it can be a useful indicator of how much further the share price could fall in the near term. You then need to look at whether its assets are any good, and whether the shares have been too heavily discounted in the market of the day.... as seems to be happening with Los Cerros. At one point, when the share price was 15¢ in November2021, the market capitalisation was nudging $100m. Now, with the share price at 2.7¢ on Friday, the market capitalisation of $17.5m. That is an 82% fall. The 2.6 Moz gold resource at Quinchia, in Colombia, is a very valuable asset that must be worth more than the $5m that the market is placing on it today. Being gold it may be out of favour for the time being with the gold price falling, and the geopolitical pendulum in Colombia having swung to the left with the recently elected President, but these factors are working together to present us with a great counter-cyclical buying opportunity either now, or in the near future.(Disclosure: I averaged down and bought a few more last week).The current cash balance is around $12.5m and won’t last forever, but the Company has reduced spending in recent months in recognition that you should not spend money just because you have it, if the market is not in the mood to acknowledge success.The news flow has been positive. Recall that the Quinchia Project contains multiple targets at various levels of investigation within a 3 km radius. While it has announced 2.6 Moz at 1 gpt in JORC resources, there is nothing to suggest that there isn’t much more in the total gold endowment. It is quite possible that LCL will continue to prove up more gold for a number of years and eventually end up with a multiple of this figure. Without going into too much detail, the latest hole released last week continued to demonstrate the expanding horizons (at depth). This was drilled in the area between Tesorito and Miraflores, beneath the existing resource shell. While the market didn’t react favourably, it nevertheless pointed to a higher grade shoot 70-100m below previously known mineralisation. The system continues with some good grade. It also hit a breccia zone, several hundred metres lower down, that also carried grade. It is not necessary, or wise, to become too concerned about individual holes in what has amounted to an 80 hole, 37,000m program undertaken over the last three years. There is a bigger picture. We know there is a substantial and growing gold resource that could arguably support a long life, 100-200,000 oz p.a. gold mine. That means it is big enough to attract the majors and the Company is in danger of being taken over when it is selling so cheaply. Thus there is some downside protection. However, an international gold producer may be a little coy while the geological situation is sorting itself out. Mine development requires both national and local government support. The politics involved in the development of new mines anywhere in the world involves dealing with many speedbumps. Sometimes mining companies are confronted by left leaning governments who seek votes in bashing mining companies, but then replacement politicians seek to reverse the damage done by their predecessors. That is what we are seeing happen in the Philippines today on a national level. Whatever a national government says, the need for a social licence from local populations is essential ... and it is becoming more so. It is difficult for any individual exploration or mining company to influence national politics, but their behaviour can have a significant impact on the support from local communities. Getting the locals on sideis both useful and essential. With this in mind it is worth looking at a press release made by LCL last week concerning community awards made to the Company. Strangely, the ASX didn’t believe that it was sufficiently noteworthy to have it released on the ASX platform, so ASX watchers might not have seen it. (Hasn’t anyone told the ASX about how important matters like this are to mine developments?)In a televised event Quinchia Mayor, Mr Absalón TrejosArias spoke of the economic and social benefits of having Los Cerros within the community and stressed the consultative, open and trustworthy behaviour the Company has demonstrated time and time again. He complimented the Company on its dedication to hiring and training locals. Further, Mr Jaime López, President of the Artisanal Mining Association of Quinchia also spoke of the trust in Los Cerros earned by the Company consistently delivering on commitments and engaging with the local artisanal workforce and families. Israel Londoño, the Deputy Governor (Deputy State Premier) of Risaralda State, said “The Company’s Miraflores/Quinchia project has had the greatest positive impact on the region due to the generation of local employment, socio-economic and productive development and ultimately the tax benefits that would be generated from production.” So, it seems that Los Cerros has strong advocates that will speak in its favour when negotiations take place with the national government. It is all part of the political process involved in getting a mine going.
(20min delay)